Public finance

52 In 2012, the Community narrowed its budget deficit from 4.4% in 2011 to 3% in 2012, thanks to efforts by some countries, namely Nigeria, Liberia and Ivory Coast. The budget balances of the three countries fell from 5%, 0.6% and 4.3% of GDP in 2011 respectively to 2.6%, -4.2% and 3.2% of GDP in 2012. Budget deficits dropped in Mali, Senegal and Benin from 3.7%, 6.7% and 1.8% in 2011 respectively to 0.1%, 5.6% and 0.5% in 2012. Amongst the countries that widened their deficits, Ghana and Togo were the worst performers with rates growing from 0.9% and 1.1% in 2011 respectively to 6.0% and 6.2% in 2012 (IMF). Ghana’s increased deficit in 2012, a year of elections, was marked by favorable economic conditions and massive tax revenues, but also by a sharp upsurge in spending. Public finances in 2012 in the UEMOA area were marked by a decline in budget deficits driven by the very strong revenue growth in Ivory Coast. In the Union, spending increased considerably, especially due to catch-up efforts in Ivory Coast and the members States’ ambition to maintain the upward trend in public spending on infrastructure.

53 Actually, budget revenues grew by 22.3%, accounting for 18.9% of GDP, a growth driven by both fiscal and non-fiscal revenues. This growth in fiscal revenues was achieved by all countries, excluding Guinea-Bissau, and driven primarily by an improvement of revenues in Ivory Coast (48.2%) following the normalization of the socioeconomic situation and strong growth in Burkina Faso (+28%). Meantime, non-fiscal revenues improved by 47.6%, accounting for 1.9% of GDP against 1.4% in 2011. This growth was achieved by all

P a g e | 18 countries, excluding Guinea-Bissau and Senegal. Grants fells by 2.4%, accounting for 2.3%

of GDP against 2.6% 2011. This decline was mainly due to the drop in grants to Mali and, to a lesser extent, Guinea-Bissau and Togo. The drop in Mali stemmed from the suspension of aid by most of its technical and financial partners owing to the socio-political situation in the country. Overall spending and net lending grew by 15.2%, accounting for 24.6% of GDP, primarily driven by the combined effects of investment spending and increase in current expenditures, especially the 16.8% growth in the wage bill driven by sharp growth in Ivory Coast (29.9%) due to new recruitments, consideration of the financial incidence of changes in administrative statuses and payment of salary arrears on category promotions. The wage bill growth happened in all member States, especially Ivory Coast (+29.9%), Togo (+15.1%), Burkina Faso (+14.5%) and Benin (+10.3%). Capital expenditure rose by 18.9%, driven primarily by the component funded internally that grew by 32.2%. This growth was achieved by all member States, excluding Benin, Guinea-Bissau and Mali. All in all, the overall deficit, excluding grants, and the overall deficit contracted, accounted for 5.7% of GDP and 3.3% respectively against 6.4% and 3.8% of GDP in 2011.

Figure 5: Budget balance excluding grants (in % of GDP)

Sources: BCEAO, UEMOA, WAMA 2012, IMF, databases of African Department (October 8, 2013)

54 In 2012, Public debt in ECOWAS countries has improved in recent years thanks to the cancellations obtained by several countries under the HIPC initiatives and the MDRI.

Outstanding public debt stood at 28.8% against 30.15% in 2011. For UEMOA, by 2012 ending, the public debt stock accounted for 33.2% of GDP against 43.8% in 2011. This favorable development stems especially from the cancellation of Ivory Coast’s debt in 2012, which cut down the ratio dramatically from 50% of GDP at 2011 to 43.1% in 2012. By contrast, in the WAMZ countries, the outstanding debt grew from 20% of GDP in 2011 to 21.2% in 2012. However, the external component contracted slightly with a rate of 11.5% of GDP in 2012 against 12% in 2011, owing not only to efficient debt management in some countries, but also to debt cancellation initiatives. This was combined with Nigeria’s low debt levels, at a stable outstanding amount (5.4% of GDP in 2011 and 2012). In Cape Verde, foreign debt remained high in 2012, standing at 74.7% of GDP as in 2011. This may be due to financing of the widening budget deficit.

P a g e | 19 55 According to the IMF, in 2013, ECOWAS countries suffered an overall budget balance deficit of 3.7% of GDP against 3.6% of GDP in 2012, due to investments by most countries and declining public income rates that fell from 23.2% of GDP in 2012 to 22.5% of GDP in 2013.

Liberia, (25.3% of GDP), Nigeria (24.5%), Cape Verde (21.8%) and Senegal (20.7%) were the only countries with income rates above 20% of GDP. This poor mobilization of budget revenues in the sub-region generally accounts for the widening of the overall deficit excluding grants, particularly in the UEMOA countries. Budget revenues reportedly grew by 10.5%, accounting for 18.9% of GDP, driven by the 10.3% rise in fiscal revenues, and thereby raising the fiscal pressure rate to 16.9% of GDP. This growth reportedly stems from efforts to recover and build on synergies between the taxation and customs authorities. It was reportedly achieved by all member States, with the strongest growths in Niger, Mali and Guinea-Bissau.

Non-fiscal revenues reportedly grew by 12.9% in 2013, accounting for 1.9% of GDP in 2013.

Grants reportedly increased by 8.4% in all member States, accounting for 3.2% of GDP. In 2013, total spending and net lending reportedly increased by 14.6%, accounting for 25.9% of GDP against 24.6% of GDP in 2012, driven primarily by capital expenditures that grew by 42%. Apart from Senegal that expected a 6.8% growth in capital expenditure in 2013, all other countries had forecast growth rates in excess of 20%. Meantime, current expenditure reportedly increased by 2.1%, despite the expected 7.1% wage bill rise and the 5.7% upsurge in operating expenditure. The increase in these items was mitigated by the 8.8% drop in remittances and subsidies. All in all, in 2013, the overall deficit, excluding grants, and the overall deficit reportedly accounted for 6.6% and 3.3% of GDP respectively.

56 In the WAMZ and WAMA, an overall deficit, excluding grants, of 2.3% of GDP in the first half-year of 2013 was recorded against 1.6% of GDP year-over-year. This downward spiral was due to poor performances in some countries, excluding Gambia and Sierra Leone.

57 In Cape Verde, the deficit excluding grants declined but remained high at 7.4% of GDP against 12.4% of GDP in the first half-year of 2012. This high deficit was primarily due to the Government’s desire to take advantage of low interest rates on the international market to raise the funds needed for priority public investments.

58 In 2013, the outstanding public debt for ECOWAS countries stood at 27.5% of GDP against 26.1% of GDP in 2012. Cape Verde (93.2% of GDP) and Gambia (79.5%) had rates that surpassed the Community standard. They were followed by Guinea-Bissau (59.2% of GDP) that suffered a breakdown in cooperation with development partners and Ghana (51.6% of GDP) that continued its program agreed with the IMF. A number of countries have embarked on a moderate re-indebtedness process, except Senegal that has a quicker rate that grew from 21.8% of GDP in 2006 to 45.5% in 2013. Nigeria is the least indebted with 19.6% of GDP which, given its weight, pulled down the sub-region’s level of indebtedness. Moreover, a more careful review shows that the average rate in UEMOA is higher than the Community average. Actually, the public debt stock was estimated at 32.2% of GDP, a trend that is expected to continue with Ivory Coast’s debt cancellation agreements.

P a g e | 20 Figure 6: Outstanding public debt (in % of GDP)

Sources: BCEAO, UEMOA, WAMA 2012, IMF, databases of African Department (October 8, 2013)

59 A comparison of performances for the different countries based on the convergence criteria gives the following results. For the budget deficit, including grants/GDP ≤ 3%, over the 1st half-year of 2013, eleven (11) countries, i.e. two less than at the same period in 2012, were able to contain their budget deficits within the limits established by the convergence program.

Whereas, Senegal and, to a lesser extent, Cape Verde and Guinea-Bissau, performed well in this area, the worst performances were recorded in Mali, Gambia and Ghana. Burkina, Faso, Ivory Coast and Nigeria remained stable. Concerning the Central Bank financing of the Budget Deficit / Fiscal revenues for the previous year ≤ 10%., all ECOWAS countries met the criterion. Regarding level-two criteria on public finances, nine countries observed the ban on accumulation of new arrears and settlement of current arrears, one country derailed, while five have no assessment data. Regarding the criterion on Fiscal Revenues / GDP ≥ 20%, only Liberia was able to observe it in the first half-year of 2013. For the criterion on Wage Bill / Fiscal Revenues ≤ 35%, five (5) countries, namely one less than in the first half-year of 2012 observed it and only four (4) observed the criterion on Public Investments / Fiscal Revenues ≥ 20% in the first half-year of 2013 against five at the same period the previous year. The strongest growths for this ratio were achieved by Nigeria, Togo and Liberia; whereas, the steepest drops were recorded by Benin, Ghana, Senegal and Sierra Leone. However, a substantial improvement is expected by 2013 ending given that in several countries, most investments were made in the second half-year.

60 With the foreign debt cancellations, especially under the HIPC initiative, most ECOWAS countries have a sustainable public debt profile (Public Debt / GDP ≤ 70%). However, two countries (Cape Verde and Gambia) missed the target on the public debt on GDP ratio.